I am reviewing a consumer loan for the purpose of purchasing vacant lots. The loan was originally originated secured by an automobile in the interest of time. The collateral was later replaced by a second mortgage on primary residence. I don't know why the land was not used. The loan was not re-written and all terms and conditions remained the same. Should disclosures and rescission now be issued? Where can I find answers?

BIll

RofR should have been given at the time the primary residence was added to the loan.

Ok, but what about RESPA disclosures and HPML now that we are taking a subordinate lien on the primary residence but as a substitution?

If all you did was substitute collateral - it was not a new loan.

See Footnote 47 in Reg Z 226.23:

47 For purposes of this section, the addition to an existing obligation of a security interest in a consumer's principal dwelling is a transaction. The right of rescission applies only to the addition of the security interest and not the existing obligation. The creditor shall deliver the notice required by paragraph (b) of this section but need not deliver new material disclosures. Delivery of the required notice shall begin the rescission period.

If this was done in any way to circumvent the disclosure rules, I could easily see it as a UDAP issue, as well as flood, Z and X. Had this collateral been used originally would it have been HOEPA/HPML? If so and the switch was soon thereafter, it could appear as a way of getting around the disclosure rules.

What if the original loan was in fact secured by the lots that were purchased (but not building with the same proceeds, just using proceeds to purchase the lots) and the auto. Then, the auto was released and then a junior lien placed on the borrower's primary residence (we still have the lien on the lots).

Would this swap of collateral make it rescindable? I'm thinking it would not be rescindable because the original purpose of the loan was to purchase vacant lots.

Please help......

If the original loan was for a consumer purpose (original collateral doesn't matter) then the addition of the primary residence triggered rescission. See Raquel's post above for the regulatory cite.

I'm confused then. I thought that if the purpose was to buy land (consumer purpose), not build with the same proceeds, secured by the land being purchased and we added a second to the existing primary, it would not have rescission.

So this loan would now have rescission because a portion of the collateral (the auto) was swapped at a later time and a second mortgage placed on the borrower's current primary residence...is that correct?

Yes, that's correct.

Thanks to everyone for helping on this one!